by Satyajit Das for The Sydney Morning Herald
Like the characters in Samuel Beckett’s Waiting for Godot, the world awaits the return of wealth and prosperity. But the global economy may be entering a period of stagnation.
Over the last 35 years, the economic growth necessary to increase living standards, increase wealth and manage growing inequality has been based increasingly on rising borrowings and financial rather than real engineering. There was reliance on debt-driven consumption. It resulted in global trade and investment imbalances, such as that between China and the US or Germany and the rest of Europe.
Everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road.
Citizens demanded and governments allowed the build-up of retirement and healthcare entitlements as well as public services to win or maintain office. The commitments were rarely fully funded by taxes or other provisions.
The 2008 global financial crisis was a warning of the unstable nature of these arrangements. But there has been no meaningful change. Since 2007, global debt has grown by US$57 trillion, or 17 per cent of the world’s gross domestic product. In many countries, debt has reached unsustainable levels, and it is unclear how or when it is to be reduced without defaults that would wipe out large amounts of savings.
Imbalances remain. Entitlement reform has proved politically difficult. Financial institutions and activity dominate many economies.
The official policy is “extend and pretend”, whereby everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road. The assumption was that government spending, lower interest rates and supplying abundant cash to the money markets would create growth. While the measures did stabilise the economy, they did not lead to a full recovery. Instead, they set off dangerous asset price bubbles in shares, bonds, real estate and even fine arts and collectibles.
Economic problems are now compounded by lower population growth and ageing populations; slower increases in productivity and innovation; looming shortages of critical resources, such as water, food and energy; and man-made climate change and extreme weather conditions. Slower growth in international trade and capital flows is another retardant. Emerging markets, such as China, that have benefited from and recently supported growth are slowing. Rising inequality affects economic activity.
For most people, the effect of these problems is unemployment, reduced job security, the deskilling of many professions and stagnant incomes. Home ownership is increasingly out of reach for many. Retirement may become a luxury for all but a few, reflecting increasing difficulty in building sufficient savings. In effect, living standards will decline. Future generations will bear the bulk of the cost as they are left to tackle the unresolved problems of their forebears.
Governments are unwilling to tell the truth about the magnitude of the economic problems, the lack of solutions and cost of possible corrective actions to the electorate. Politicians have taken regard of historian Simon Schama’s comment that no one ever won an election by telling voters it had come to the end of its “providential allotment of inexhaustible plenty”. The official policy articulated, in a moment of unusual candour, by Jean-Claude Juncker, the current head of the European Commission, was that when the situation becomes serious it is simply necessary to lie.
Ordinary people are complicit; refusing to acknowledge that maybe you cannot have it all. They sense that the ultimate cost of the inevitable adjustments will be large. It is not simply the threat of economic hardship; it is fear of a loss of dignity and pride. It is a pervasive sense of powerlessness.
The political and social response is likely to be volatile. It was the fear and disaffection of the middle class who had lost their savings in the events of Great Depression that gave rise to totalitarianism.
For the moment, to paraphrase Alexander Solzhenitsyn, the “permanent lie [has become] the only safe form of existence”. But the world cannot postpone, indefinitely, dealing decisively with the economic, resource management, social and political challenges we face.
Satyajit Das is a former banker and author. His latest book A Banquet of Consequences was published on August 26.
Source: Why we need to lie to ourselves about the state of the economy
Over at the Drudge Report I saw this from the Weekly standard written by Julius Krein.
Traitor To His Class :Nothing is more terrifying to the ELITES then Trumps Embrace of American Nationalism….. So that’s why Trump is so popular?
Trump is patriotic , he loves his country. Doesn’t want to see it completely destroyed from within.
Stucky , I think you should learn to love Trump. He is the solution to your problems in New Jersey.
For about 200 years, the US was on a gold standard and inflation and growth was moderate. Then the Welfare/Warfare Society began by FDR and greatly expanded by JFK in 1961 and then LBJ, Nixon, et all was using up all the taxes and borrowing possible. By 1971, so many American dollars were coming back home that inflation got out of control and Nixon ordered price controls. Our gold reserves were being depleted so fast by foreign countries that Nixon ended the gold standard (the Nixon Shock: no more dollars exchangeable for gold). But spending kept increasing so naked Fiat Money printing began. Without the need for gold to back dollars, the printing and spending increased exponentially. The Ponzi economy burned the candle at both ends end took off to the moon. Anytime a recession occurred, interest rates were notched down to goose borrowing and the GDP back to the new normal. TPTB Elite, their Central Banksters and the politicians controlled the money spigot and hogged the new cash to enrich themselves and to buy and control every power lever in America (corporations, media, governments, universities etc). By 2008, debt had became an anchor dragging public spending down to the point there would have been a depression if about 20 trillion dollars hadn’t been printed and secretly loaned out at about 0.01% interest to the Elite and Central Banks all over the world to be spent or loaned out on anything to goose the economy. Now after three years at zero interest (and many bubbles: retail store outlets, computer and internet control, student loans, home loans, car loans etc), the taxpayers and local governments can’t even afford to pay the interest much less an increased principal. Soon we will experience the deflation and hyperinflation caused by Fiat Money, prodigal governments, business and people.
Whether we see deflation or hyperinflation will mainly be the result of where all that newly created money ends up going.
So far just enough of it has hit the general economy to give very mild inflation with the rest going into the financial markets and real estate -particularly upper end and investment property- to keep those markets pumped higher and higher while leaving the average American on the fringe of things.
It could stay that way for quite some time, foreign held dollars repatriating themselves may determine what happens.
@Anon, we are, and will, continue to see both.
Deflation in our savings, homes, jobs, wages, toys
Inflation in all that is mandated (insurance, taxes) and necessary food, utilities will soon be hit hard.
This is going to continue on. The stuff you don’t need is dropping in price while the things from nature and required to survive continue to cost more and more.
The statist economists will have their choice of cherries to pick and use to obfuscate the truth.
TE- Well said, I am sweating the property tax bills this year on all my properties as they are sure to be higher than last year. Insurance for all have almost doubled in the last four years but hey, the tv said inflation is low……….Right? Don’t get me started on food prices.
I tell people what is happening, but almost no one, save for small business owners, want to understand what is happening.
Even the young, who are being hit right in the face with soaring unemployment and lower standards of living, do not want to understand. The response I tend to get from the young is that the answer is to “soak the rich”, to provide universal income to everyone, to provide free education for everyone,that work weeks are too long and that they need to be lowered so as to provide more jobs, etc.
The young are going to get royally screwed, and they are to brainwashed to be able to provide any answers. Damn, the situation is going to be really, really bad.
Gotta find a Shamrock to help me forget for a moment what is coming down the pike.
Author states living standards will decline – they have already declined, where the hell have you been. While it is true the aging demographics for a developed economy is part of the problem for economic growth (which is important for increasing living standards), there is a more important an insidious element affecting our standards of living; and that is the purposeful intent by our government to stifle growth with regulations, especially the EPA.
Lying to ourselves about the state of the economy? Bullshit.
If anything, a good portion of the population is lying to themselves by believing anything our government states; this is not only CONgress, but Agency heads, NGO’s funded by gov’t, and especially our Liar-in-Chief along with all the others, mostly liberals.
Don’t you worry lipoh. You still got me.
Excellent, esp. as to the author’s capturing the essence of the modern industrial world – denial.
Marred only by the inclusion of the “man-made climate change and extreme weather conditions” nonsense.